Don’t Fall for the Head Fake

Many traders fell for the market's latest head fake - don't be one of them; here's what you need to watch.

Things are moving quickly, and with a new month as well as the end of the week, I’m seeing several things happening in different timeframes. While there are a few important points, the key thing to watch for Friday is if the S&P 500 futures will hold the 1480 to 1485 level.

In addition, we have the potential for not only confirmed outside reversals (bullish and bearish on multiple time frames) like we saw yesterday in the U.S dollar, which is sporting a bullish outside key reversal daily chart, or the VIX, which now sports an outside bullish key reversal on the monthly chart and has now confirmed, but we also have the potential for a slew of outside bearish weekly reversals.

The April gold contract fell $17.90 to 1577.80 per ounce, and ended 1.1% lower, totaling a 5.1% loss for February. This makes the fifth monthly drop in a row and the longest run of monthly declines for gold in 16 years.

The euro has now finally broken the major support level of 1.30 while the UK Sterling has gone from 52-week highs in January 2013 to now new 52-week lows in just eight weeks. Just saying what we are seeing happen right now in the currency sector is a “shocker” doesn’t even do it justice.

Bottom line, the “big move” is underway; it’s just not the direction the bulls were hoping for. I expect we will soon see the price action in nearly every asset class falter, despite the little head-fake rally that happened just two days ago in the broader market. Admittedly, it was a doozie of a head-fake and we have to keep in mind that the S&P 500 futures has support at the 1,500 level. However, if that is lost today, a rapid move to the lows of the week would not surprise me at all.

The net is that only those closing numbers on Friday will give us added confirmation across key stocks and sectors, but I remain firmly in the camp that a downturn is coming.

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